How prepared are you when it comes to financial literacy? Knowing about managing personal finances is important to be financially successful in the long run. In this article, we will discuss the top ten financial tips for recent graduate students that will surely help them manage and grow their money appropriately.
Every year, there are about five million students who graduate in the USA. These students have achieved a major milestone in their career, with the college degree being their stepping stone to a successful professional life. Although colleges teach skills related to their profession, not many institutions have any programs teaching financial planning to college graduates. This means that when the recent grads enter the professional world, they are often not prepared for managing their personal finances.
Therefore, it is very important that the about-to-be and the new college grads learn how to skip the mistakes most people under 25 make. Rather than a lengthy and boring lecture about graduate financial planning, you will find ten short pieces of financial advice for college graduates below.
Here are some of the top financial tips that you should consider.
After being financially dependent on your parents for most of your life, it is only natural that you want to blow through your paychecks and get down to having fun. However, as tempting as that can be, you must always ensure that you are saving at least twenty to twenty five percent of your paycheck. While the saving may seem insignificant at the start, but after a few months, you will start to realize about the massive financial head start you have now compared to most of your peers. Moreover, after keeping aside your percentage of saving, you can spend your salary without any guilt of wasting money.
Your saving will provide you with a financial cushion to ensure that you are not left scrambling when faced with unexpected expenses. At all times, you should have enough in saving to cover up your expenses for a couple of months. Of course, this is not possible after your first few paychecks, but if you follow the strategy of keeping down twenty to twenty five percent of your paycheck, you should have no problem in having a sizable emergency fund for basic needs.
To stop living from paycheck to paycheck and to become financially free, it is important that you educate yourself with basic money management. Reading a couple of finance books specially curated for the millennial generation is a great way to start.
With easy to use mobile applications around, you should also start tracking the inflow and outflow of your money, including your saving, bank account balance and any other source of income. By tracking your money flow, you will be better able to visualize and analyze your money. Remember that your incoming money should always be greater than your outgoing money if you want to escape the rocky road of financial uncertainty.
Budgeting is a reliable way to ensure that your income is always greater than your expenses. You should have an experience in budgeting from your time at college. You should list down your essentials on a notebook, or any of the mobile applications, including things like rent, utilities, food expenses, transport expenses, loan payment, etc. Add up the total amount you are spending on your essentials each month and then subtract from your income to see how much you are left with to spend on discretionary expenses.
If you are not left with a lot with a lot after cutting your essential expenses from your income, you should start adopting money-saving hacks in your daily life. Examples of such hacks include skipping eating at restaurants, opting to take the metro/buses instead of taxis, sticking with old clothes instead of buying from the new season stock, etc. Becoming frugal is nothing to be ashamed of, especially when you are thinking about building a great financial future.
Most college grads start their career with the burden of student loans on their head. You have to consider your student loan as your enemy, which will put your finances down for a greater part of your midlife – unless you actively plan to clear your debt. Of course, unless you become a millionaire overnight, it is highly unlikely that you can immediately pay off your student loan. However, what you can do is take small steps in ensuring that the debt is cleared off earlier than what you initially planned for.
A recommended strategy for pulling this off is to add an extra $25 - $35 to your monthly repayment. Again, the amount seems to be an insignificant addition, however, multiplied by the number of months of your repayment, the addition of this small amount will shorten the debt life and save you interest. You can also set up automatic deductions from your bank account to ensure that your repayment is always on time. It will also save you the hassle to manually go through the process every month.
However, student debt is not the only debt that you would need to manage. After securing a job, you would most probably get a credit card. While spending on credit is not recommended, it can be useful at times and can even help you reach your financial goals if used properly. You should focus on paying your balance every month and if you need to choose between paying for student loan or credit card balance, always pay the credit card bill first as its interest can be as high as 20%, forcing you to pay a lot more than the principal amount.
In an ever changing world, you should never stick to only one source of income. Investing is the only way in which you can truly become free from your paycheck-dependent lifestyle. It is also a way to ensure that you have financial security, in case you lose your job or are unable to continue it due to any disability.
College grads usually do not think about investing or are reluctant to start because of the fear of uncertainty. However, this is the best time for you to invest, without having major responsibilities pulling you down – responsibilities which will enter your life in your 30s. There has never been a better opportunity to start investing than in today’s world. With time at your hand, you are ready to take advantage of compounding your money and growing it to higher levels. Whether you want to put your money in stocks, mutual funds, bonds or real estate, you must take action and stop procrastinating about building wealth in the future.
Options for investment include long term and short term strategies; you will be surprised at how little it takes to get in the game. Again, keeping in touch with the latest investment strategies will allow you to maximize your profits.
Working on a retirement plan when you are just starting your career may seem like an overkill. However, you would be glad to have one so early. Most employers provide a 401(k) or a similar alternative, where you and the employer can contribute for your retirement fund. These contributions are not subject to taxation and can grow to a substantial amount, owing to the power of compound interest, by the time you retire. By putting your money down to a retirement fund, you will automatically be relieved of having to save aside money for your old age. Of course, it is important to note that you should not touch the fund when you are changing jobs or to get capital for any investment. While it may seem tempting to invest the money in this fund to get possibly higher returns, there is always a chance of losing the money and finding yourself with no substantial savings when you are old.
You need to be practical and get yourself insured against future catastrophes. While a health insurance can seem like a luxury when you are trying to live frugally, you will be glad that you paid the monthly deductible if you face a grave health issue. A Health Saving Account will keep your costs as low as possible, without compromising on the coverage.
Accidents or diseases can come without any warning, but with your financial preparation to tackle the cost of treatment, you will appreciate the fact that you invested in insurance.
You need to stop preparing yourself for a big break. It may come or may not come, even if you spend your whole professional life running after it. Instead of waiting, you need to get active and start hustling to achieve your financial goals. Starting a side business has never been easier. Whether you have a passion for ecommerce, screenwriting or cooking, you can use it to earn money. If you want to boost your earnings or are looking to venture into a different professional field, start working towards it. Focus on making connections along the way as personal connections go a long way in bringing life’s opportunities at your table.
Too many people are demotivated by their full-time work to consider pursuing a side hustle. It is a norm amongst most professionals and, hence, when you decide to take the plunge, many of these people will come to warn you about the risks of having a business. You must stay focused and continue working hard to put your passion into something productive, as even though your side gig may not be successful in terms of money, but it will teach you several lessons which will put you on your way to greater success.
If you thought your learning will stop with the graduation from college, you will be surprised to know that it doesn’t. The world is evolving at a faster pace than ever before. This means that the skills which were once essential are now irrelevant. You never know what if your technical expertise will still be required by the companies, in its same form and level. By learning new skills or by updating your already developed skills, you have the edge over other people and have a secure future ahead. Learning most things is now possible via the internet and the computer, which means that you do not even have to leave the comfort of your couch to get started with.
Once you get into the professional life, you would find yourself in an ever-competitive chain with other colleagues, most of whom are trying to get the highest paying job or the senior most position in their company. However, you should always remember to focus on job satisfaction more than the job salary. In your life, you may often find yourself with a chance to deviate from your career interests and opt for a job with a higher salary.
While money is important, you need to remember that in the long run, working in an unrelated field can trap you, cut down your happiness and delay your career progress. Instead of always striving for the best paying jobs and comparing your salary with your friends’ salaries, you should focus on your happiness by finding the perfect balance between job satisfaction and salary.
While you need to focus on your savings and investments, you also need to spend your earning to chill a couple of times in a month. Do not get so ingrained in making your finances grow that you miss the chance to truly enjoy your life at the peak of your physical and mental health. Too many graduates today are working too hard and burning themselves out. They often forget that your energy is not limited and has to be recovered by disconnecting from what is draining the energy and finding peace.
Perhaps try learning martial arts or yoga or take pottery classes – develop any hobby that allows you to recover from the exhaustive mundane routine.
All in all, it is a great achievement that you have graduated from college and are on the way to climb the career ladder. With the aforementioned advice about finance, you already have the basic knowledge on which you can build on and be free from financial obscurity. Remember that you are going to face ups and downs in your career, but consider all of them as life lessons that will lead you to greater success.